Indian firms can now directly list in foreign markets – there are a few more big changes to Companies Act

• Finance Minister Nirmala Sitharaman said the move will make it easier for companies to raise funds during these times of cash crunch.
• The government also reduced the burden of compliance by decriminalisation of minor violations of Companies Act provisions.
• 7 compoundable offences have been dropped while penalties for small/one-person/producer companies and start-ups have been lowered.

The Narendra Modi administration’s fifth set of reforms amidst the COVID-19 crisis included some sweeping changes to the Companies Act, which include allowing firms to raise money overseas and decriminalisation of minor violations.

Finance Minister Nirmala Sitharaman said that these measures will improve the ease of doing business in India.


Companies can now directly list their securities in foreign jurisdictions

Sitharaman also made it easier for Indian public companies to raise funds by allowing them to directly list their securities in permissible foreign markets.

Private companies which list their non-convertible debentures (NCDs) on stock exchanges will not be regarded as listed companies. This will help private companies in raising funds without having to deal with the additional compliance requirements for listed companies.

Sitharaman also announced relief for small companies, one-person companies, producer companies and startups by lowering penalties.

No punishment for minor violations

The decriminalisation of Companies Act violations relate to minor technical and procedural defaults like shortcomings in CSR reporting, inadequacy in board report, fixing defaults, delay in holding annual general meetings (AGM) etc.

"The reforms announced in relation to Companies Act to decriminalize minor procedural and technical infractions and shifting bulk of compoundable offenses to internal adjudication mechanism will help Indian corporates especially start-ups in multiple ways including by disentangling them from these procedural hurdles which in turn will positively impact their valuation and boost investor sentiments who are looking to invest in such companies with good health from a compliance perspective," said Prasenjit Chakravarti, Partner, Khaitan & Co.

7 compoundable offences dropped

Apart from this, Sitharaman also announced that the government has dropped 7 compoundable offences, while 5 others will be dealt with by an alternative framework called Internal Adjudicating Mechanism (IAM).

For this purpose, Sitharaman has enhanced the powers of Regional Directors – now, 58 sections of the Companies Act, 2013 will be dealt with under IAM by the Regional Directors, increasing from the 18 sections earlier.

This will help the government de-clog the criminal courts and the National Company Law Tribunal (NCLT). In turn, this will help these courts and the NCLT to focus on the more pressing matters before them.

The government will pass an ordinance (order) in this regard, as the Parliament is not in session right now. The exact details of the compoundable offences that have been dropped will be revealed only then.

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